Will Middleby Earnings Keep the Stock Red-Hot?

Image: Middleby.

People around the world look forward to having professionals cook for them, and Middleby (MIDD 2.13%) plays a vital role in making restaurants a reality by offering commercial ovens, refrigeration equipment, and other necessary appliances for cost-effective food-handling and cooking applications. As Middleby prepares to release its second-quarter financial report on Wednesday afternoon, investors have been more optimistic than ever about the company's prospects, sending the stock to new all-time highs. Can Middleby live up to the high expectations of its long-term shareholders? Let's take an early look at how Middleby is likely to do and what its results could tell us about the future.

Stats on Middleby

Source: Yahoo! Finance.

Will Middleby earnings top investor expectations?
Investors have gotten slightly more optimistic in recent months about Middleby earnings, boosting their full-year 2015 projections by about 1% and making similar increases to next year's earnings expectations. The stock has done a great job of capitalizing on investor enthusiasm, rising 21% since early May.

Setting the stage for Middleby's solid share-price gains was its first-quarter report. A strong dollar weighed on sales and profit growth, but on a currency-neutral basis, Middleby grew faster than investors had expected. In particular, the Foodservice Equipment division saw the best performance from organic growth, while the Residential Kitchen Equipment group scored even faster sales growth from a key acquisition. With a new slate of product offerings on the way, CEO Selim Bassoul was enthusiastic about Middleby's future prospects.

Yet Middleby is far from done trying to grow. In June, the company confirmed that it was in preliminary discussions to consider a cash buyout of U.K.-based AGA Rangemaster Group, and by July, Middleby had concluded the negotiations with a purchase of the kitchen-appliances and interior furnishings maker. The deal will be worth about $200 million, and by expanding Middleby's exposure to the residential kitchen equipment market, the company clearly hopes that AGA's $400 million in annual revenue will add brand-awareness and greater manufacturing capacity to Middleby's overall business. Some question whether AGA's high-end home appliances will have an adequate audience, but with economic conditions in the U.S. arguably better than in the U.K., having Middleby's customer base could give a boost to AGA's product line. The company expects the deal to close during the third quarter.

The key to Middleby's acquisition strategy involves the company having confidence in the existing personnel at its target companies. In discussing the AGA Rangemaster deal, Bassoul said, "We try to rely as much as possible on management that exists who know how to run their business. That will be the case with AGA as much as we can." Bassoul expects that just as he has seen in Middleby's acquisition of Viking, some of AGA's existing personnel will be able to adapt to Middleby's way of doing things and thereby help lead the new division toward more successful end results.

One question that Middleby still needs to answer is what it will do with AGA's other market exposure. AGA makes everything from furniture to tile in addition to kitchen products, and Bassoul admitted that those businesses won't be the core part of what Middleby is trying to achieve. Nevertheless, he left open the possibility of "uncovering some gems there that we did not know," showing the flexibility of the company's overall approach.

In the Middleby report, it will be important to look beyond immediate financial results to figure out how its most recent acquisitions fit into its longer-term strategy for the future. The company expects to reap some big rewards from its purchases, but it will be equally important for Middleby to make sure it doesn't get distracted in addressing the core business that has brought it so much success.